Tax Expenditures Report: Clues to 2020 Federal Budget Changes?

Evelyn Jacks

Is wealth preservation important as demographics change dramatically over the next 15 to 20 years in Canada? Or are today’s taxing requirements so great that governments need to tap into wealth accumulation immediately? Those are a few of the tax policy questions to be answered as federal and provincial budget season arrives in Canada this month. A recent federal government report provides some good clues as to what may lie ahead.

Since 1979, the government of Canada has reported on the costs of its tax expenditures – tax exemptions, including deductions, non-refundable tax credits and the non-taxation of principal residence gains or partial taxation of certain income sources like capital gains income. Since 1994 it’s reported on the GST as well. This year’s report was released on February 27.

In reviewing some of the selected provisions in the report, it is interesting to note that the most expensive provision is the Basic Personal Amount, which comes in at close to $44 billion in 2020. It has recently been enhanced by the federal government to provide a $931 supplemental amount in 2020 for those with incomes below $150,000. 

The following provisions are next in line in terms of expense rankings (in billions of dollars):

Most of the remaining non-refundable tax credits are each valued at under $2 billion in costs per year while deductions like child care, employment expenses and union dues under $1.5 billion each.

As boomers retire and tap into benefits from their RPPs and RRSPs the expenditure levels for government will not only decrease, but those income sources will become taxable as well. The same is true of the disposition of non-registered investments that will generate capital gains income.  Should the government want more money, a change in the capital gains inclusion rates would be an unpopular but likely next step.

These provisions would represent the taxation of a lifetime of labor and capital generated by the boomer generation. Coming after them is a much smaller demographic and with that, a reduction of productivity of both labor and capital.  How will future governments cope with those challenges?  Postponing retirement ages is an option; so is increasing immigration opportunities. This will become an increasingly important trend future leaders in Canada will want to monitor from a tax policy standpoint.     

Manitoba’s Budget Day takes place next week on March 11.  We previously covered the B.C. Budget, where the big news was the increase in tax for top earners from 16.8% to 20.5% for taxable incomes over $220,000. Alberta’s Budget has since come out as well. The February 27 Budget  included major cuts to the Calgary Stampede budget and a 4% tourism tax on short-term rentals listed online (i.e. Airbnb), which the government has estimated will bring in $3 million this year.

We will provide you with all of the news on the federal and provincial budgets in subsequent issues of Knowledge Bureau Report. Although, the federal government has yet to announce their budget day.

We will also be discussing the technical details arising out of these important events at the following Knowledge Bureau events – please mark your calendar:

• Learn more online by taking the DFA-Tax Services Specialist™ program.
• Attend the Spring 2020 CE Summits in four cities May 26 – June 2.
• Join us at DAC Acuity 2020 in Niagara Falls, October 28-30.

Here’s some further background information from the report:

Evelyn Jacks is President of Knowledge Bureau and author of 55 books on personal tax and wealth management. 

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